Justin Pugsley - Justin has over 20 years experience writing about markets, economics and finance. He has worked for a number of leading media organisations such as Agence France Presse (AFP), Dow Jones, Wall Street Journal, Thomson-Reuters, British Sky Broadcasting and McGrawHill.
Justin Pugsley
Justin has over 20 years experience writing about markets, economics and finance. He has worked for a number of leading media organisations such as Agence France Presse (AFP), Dow Jones, Wall Street Journal, Thomson-Reuters, British Sky Broadcasting and McGrawHill.
Profile

EUR outlook improves as inflation rises and populist fears recede

On Sunday France holds the second round of elections with pro-EU centrist candidate Emmanuel Macron widely expected to win while GDP growth and inflation are ticking up in the Eurozone making a good case for holding the EUR.

A stab at EUR/USD 1.1000 and beyond can’t be far off providing the good news keeps rolling in from the Eurozone.

The very likely victory of Macron on Sunday should for a while banish existential fears over the Eurozone – though of course a national election in Italy is due within the 12 months, which could have unpredictable results. But for now, the markets are not worried about that.

EUR outlook improves as inflation rises and populist fears recede

The very likely victory of Macron on Sunday should for a while banish existential fears over the Eurozone – though of course a national election in Italy is due within the 12 months, which could have unpredictable results. But for now, the markets are not worried about that.

The days of ultra-easy monetary policy appear to be numbered, particularly if inflation starts to move above 2%. The European Central Bank may even come under pressure – particularly from Germany – to revise its mantra for keeping monetary policy easy for an “extended period of time”. Once the French elections are out of the way, the ECB’s tone could start to change. ECB President Mario Draghi speaks on Thursday.

But before the results of the French election, the market will be focused on April Non-Farm Payrolls on Friday expected around 190,000 versus a surprise 98,000 in March. Of particular focus will be wage inflation, which has been rising recently with the employment cost index rising 0.8%, the biggest increase since Q4, 2007. A strong reading on the jobs figures and wages should keep the US Federal Reserve on track with its planned rate rises.

Also, of importance for USD are the attempts by President Donald Trump to get his tax reforms through Congress with any victory likely to be bullish for the Greenback.

However, in the short- and even to medium-term, the outlook for the EUR has not looked this bullish for years. But will the revival in GDP growth in the Eurozone be enough to quell the rise in populist politics across much of the Continent?

Other scheduled events to watch this week include US ADP non-farm employment change, non-manufacturing ISM PMI and the FOMC statement on Wednesday and Friday chair of the Fed, Janet Yellen speaks as do a number of other senior Fed officials.

 

TECHNICAL ANALYSIS: EUR/USD outlook remains bullish

Following a big jump recently – EUR/USD looks poised for further attempts on the upside, particularly with the 200-day moving average having been breached (turquoise blue line).

But there is likely to be a further period of consolidation with the technical indicators looking over-stretched. The daily RSI is looking close to being over-bought at 65.50 and the pair are pushing on the upper Bollinger band. A potential downside danger for the pair is a gap on the dailies at 1.0777-1.0820. Generally, markets like to remove gaps on the chart and it’s possible this one might be filled before the EUR/USD rally resumes.

Resistance can be seen at 1.0930, 1.0950, 1.1008 and 1.1027 and support at 1.0865-7, 1.0812, 1.0777 and 1.0730.

 

By Justin Pugsley, Markets Analyst, MahiFX

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